How To Calculate Individual Income Tax For Foreign Employees?

[dropcap]T[/dropcap]he distinction between resident and non-resident individuals in calculating income tax involves three “days”: living days, domestic stay time, and working days. Below, we have sorted out several questions.

 
Q: Our company has newly recruited a foreign employee. How should the company withhold and remit taxes when paying wages and salaries? If the employee meets the personal conditions of residents in the future, does the calculation method change?

A: According to the individual income tax law of the People’s Republic of China, an individual who has or has no domicile in China and has resided in China for a total of 183 days in a tax year is resident.

Individual income tax shall be paid following the provisions of this Law on income obtained by individual residents within and outside China. An individual who has neither domicile nor residence in China, or who has no domicile but has resided in China for less than 183 days in a tax year, is a non-resident individual.

Non-resident individuals shall pay individual income tax following the provisions of this Law on their income obtained within the territory of China. According to the regulations on the implementation of the People’s Republic of China personal income tax law (No. 707th), the term “residence” in China is called “habitual residence” in China by registered residence, family, and economic interests.

When an individual without domicile makes his first declaration in a tax year, he shall estimate the number of days of residence in China in a tax year and the number of days of stay in China within the period specified in the tax agreement according to the contract and calculate and pay tax according to the expected situation (Announcement No. 35 of the Ministry of Finance and the State Administration of Taxation in 2019 and Announcement No. 61 of the State Administration of Taxation in 2018)

If he expects to be a non-resident taxpayer, the withholding agent shall withhold and remit tax monthly when paying the income from wages and salaries. The taxable income shall be the balance of the monthly income minus the expenses of 5000 yuan.

The taxable amount is calculated in table 3 of the individual income tax rate. If an individual without domicile is determined as a non-resident individual in advance and meets the personal conditions of residents due to the extension of residence days, the tax withholding method shall remain unchanged within a tax year.

After the end of the year, the final settlement and payment are handled following the relevant provisions of individual residents. However, if the individual leaves the country in the current year and is no longer expected to enter the country within the current year, he may choose to handle the final settlement and payment before leaving the country.

Q: Our company has hired a foreign engineer who has no residence in China. How to calculate his residence time in China?

A: According to the announcement of the Ministry of Finance General Administration of Taxation on the Criteria for Determining the Length of Residence of Individuals without Residence in China (Ministry of Finance General Administration of Taxation Announcement No. 34 of 2019):

1. If an individual without domicile has resided in China for 183 days in a tax year, and has resided in China for 183 days in the previous six years, and didn’t leave China for more than 30 days in a single year, the individual income tax shall be paid for income from sources inside or outside China in the tax year.

If the cumulative number of days of residence in China in any of the previous six years is less than 183 days or the single departure is more than 30 days, the income derived from outside China and paid by overseas units or individuals in the tax year shall be exempted from individual income tax.

The previous six years mentioned in the preceding paragraph refer to six consecutive years from the year before the tax year to the first six years, and the starting year of the previous six years shall be calculated from 2019 (inclusive).

2. The cumulative number of days of residence in China (for an individual without a domicile) in a tax year shall be calculated according to the cumulative number of days of residence in China.